2017 law firm perspective
Domestically, the U.S. office market’s trends of tight vacancy, net expansion from occupiers and increasing costs are beginning to show signs of change. Vacancy at the top of the U.S. office market is slowly moving upward and now sits at 12.5 percent, although still below historic norms, driven by rising volumes of new development hitting the market. Further helping tenants has been the slowdown in occupancy growth due to labor and space shortages. Secondary markets including Austin, Charlotte, Nashville, Oakland and Raleigh have bucked this trend through sustained absorption, boosting rent growth and limiting the ability of firms to expand or relocate to higher- quality space. Firms in these markets will face more severe constraints over the short term.
The biggest challenge for law firms on the real estate side is rent growth, which continues unabated. In response to a 35.7 percent spike in CBD Class A rents since 2010, legal services hubs are expecting a sharp uptick in speculative deliveries and are responsible for the majority of the 65 million square feet of premium product under construction in urban cores, with firms taking on space in high-profile developments such as Hudson Yards and Manhattan West in New York, 444 W Lake Street and 150 N Riverside Plaza in Chicago, 1900 N Street NW in Washington, DC and 100 Northern Avenue in Boston. Firms in these geographies will have not only plenty of new, efficient space but also a plethora of second-generation space to choose from. More second-generation space is coming back to the market as law firms have been some of the most proactive tenants in preleasing space at new developments, along with tech, financial and professional services firms.